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WellCare shares nose-dive after raid

The health insurer sees $3-billion in market value vanish.

By KRIS HUNDLEY, Times Staff Writer
Published October 26, 2007

WellCare, which provides health plans for about 2.3-million people on Medicare and Medicaid, lost about $3-billion in market value.
	[Ken Helle | Times]

With its stock in a free fall, WellCare Health Plans Inc. and its employees struggled to recover from the raid on their Tampa headquarters Wednesday by more than 200 federal and state agents.

By the close of market Thursday, WellCare's shares dropped nearly 63 percent, to $42.67. The precipitous decline wiped out $3-billion in market value, making it one of the biggest single-day losses by a large publicly traded corporation based in this area.

WellCare, which provides health plans for about 2.3-million people on Medicare and Medicaid, issued a news release saying it was cooperating with the government, but disclosing no details on the nature of the investigation.

"Our primary focus is to make sure that our operations are running smoothly and that we are continuing to pay provider claims timely, answer our customers' calls and provide access to covered health care services for our members," WellCare chief executive Todd Farha said.

A company spokeswoman said most of WellCare's nearly 2,200 employees in Tampa were back at work Thursday.

Employees who witnessed Wednesday's raid said agents from the FBI and state Medicaid Fraud Unit seemed familiar with the layout of WellCare's sprawling campus on Henderson Road and carried photos of individuals targeted for questioning.

At 9:30 a.m., several agents headed directly to the company's third-floor boardroom where a quarterly meeting of WellCare's directors had been under way for about an hour. Seven directors, including Farha, were held in the boardroom for questioning for several hours. An eighth director, former Sen. Bob Graham, was reportedly out of the country.

Other agents directed employees to conference rooms, where workers' identification cards were photographed and computer passwords were recorded. Employees were told laptops and documents seized by investigators probably would not be returned.

Among the documents seized were files reportedly related to WellCare's Medicaid and Medicare business in Florida. The company is the largest Medicaid provider in Florida, with about 356,000 members. It is slated to get about $706-million in reimbursements from the state this year. WellCare has about 10 percent of Florida's Medicare market.

Another area of interest to authorities was files relating to WellCare's Harmony Behavioral Health subsidiary. Harmony handles mental health claims for WellCare members in Florida, as well as eight other states.

WellCare, which had $3.8-billion in revenues last year, all from government contracts, said it has hired two law firms "to assist the company with responding to the investigation." It has retained King & Spalding, which has offices in Washington, D.C., and Greenburg Traurig of Miami.

Since it was acquired by a New York City investment firm in 2002, WellCare has been an astute lobbyist for its interests.

In spring 2004, the company gave then-Florida House Speaker Johnnie Byrd flights home on its private jet at the same time the managed care company was pushing legislation potentially worth millions of dollars in contracts.

And WellCare CEO Farha, 38, won recognition as a Republican Party "Pioneer" for his $100,000 donation to President Bush's re-election campaign in 2004.

Farha's generosity paid off. In spring 2006, Bush picked Farha, a Harvard MBA, to represent public interests on the board of the Securities Investor Protection Corp. SIPC acts as trustee or works with court-appointed trustees to help investors recover funds when brokerage firms fail.

On Thursday, Steve Harbeck, SIPC president, said Farha will remain on the board as vice chairman, despite the investigation into WellCare's activities.

Recently, WellCare's stock had been soaring to all-time highs. That triggered preset trading programs for several of the company's key executives. Since Sept. 21, Farha, has sold nearly 34,000 shares, raising about $3.7-million. He still owns more than 750,000 shares in the company.

Lawyers warned that any government action against WellCare could take years to play out. John Lauro, a Tampa lawyer and former federal prosecutor, said the WellCare raid is comparable to the federal investigation of the HCA hospital chain 10 years ago.

In that case, federal prosecutors failed to prove their Medicare fraud case against four hospital executives. But the company pleaded guilty to criminal charges and paid $840-million in fines to settle civil charges.

Lauro, who suspects the WellCare investigation was triggered by allegations by a former employee, said the company is in the difficult position of trying to defend itself against unknown charges.

"Unfortunately for businesses these days, it's become a very aggressive investigative environment," he said.

Times staffers Casey Cora, Kevin Graham and John Martin contributed to this report. Kris Hundley can be reached at hundley@sptimes.com or (727) 892-2996.

[Last modified October 26, 2007, 01:01:19]